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Indian exports declining in labour intensive sectors

Despite the Centre’s focus on promotion of exports and creation of jobs, the country’s exports, mainly from the labour intensive sectors, have been on a declining path in the last decade and there is a need for some rapid structural changes for revival, say experts.

The slowdown has been pointed out by many rating agencies, including Crisil, but successive governments have not paid heed to such red flags. Rating agency Crisil had recently pointed out the lack of competitiveness which is leading to slow growth of exports from the country’s labour intensive sectors.

The labour intensive export sectors include gems and jewellery, raw leather, leather products and readymade garments. Sachin Bhatia, chief executive officer of Metro Infrasys, a trade consultancy firm, told The Sunday Guardian. “It is a worrying fact that India’s exports are not picking up, that too at a time when the global environment is becoming more conducive for trade. The reason is not weak currency, but the lack of competitiveness. Exports from the labour intensive sectors are not only important for the generation of foreign revenue, but the sectors need a boost for creating more jobs.”

“As per IMF data, while global merchandise trade is expected to grow stronger at 4.2%, India’s exports have not been able to take advantage from a stronger trade environment, unlike many of its Asian counterparts like Vietnam, South Korea and Indonesia. India’s export growth was 9.5% in last fiscal, but for Vietnam, South Korea, and Indonesia, it was way higher at 23.8%, 18.4% and 17.8%, respectively,” Bhatia said.

Between 2006 and 2016, the competitiveness of the gems and jewellery sector has declined from 6.38 points to 3.96, leather and leather products from 3.12 to 1.79 and the readymade garments sector from 2.43 to 2.22 points, according to Economic Survey 2017-18.

“The national competitiveness of manufacturing has not made great pace, reflected in the declining manufacturing export-GDP ratio and manufacturing trade balance. For the immediate future, addressing exporters’ concerns is imperative,” the Economic Survey 2017-18 reads.

A few experts, however, claim that despite the demonetisation drive that slowed down domestic economic activity since November 2016, India’s exports grew at the fastest pace in five years by 4.7% in 2016-17. However, various analyses have revealed that the competitiveness of the labour intensive sectors had already been on the decline since 2006, and was further impacted by demonetisation and goods and services tax (GST).

According to World Bank data, an increase in the outward remittances has failed to fill the gap in the current account deficit (CAD) in the recent past. India’s CAD doubled to 1.2% of GDP or $7.2 billion, throughout 2016-17.

Paramjeet Singh, a former Export Promotion Council member, told The Sunday Guardian: “The problem of the country’s widening CAD on year-on-year basis is difficult to fill in the current scenario when India’s basket of exports (engineering goods, gems and jewellery, chemicals and readymade garments) have been registering negative or near zero growth rates since many years. Also, a commodity group like drugs and pharmaceuticals, that was earlier showing export dynamism, has been indifferent or poor during recent times.”

“High exports growth, particularly in the labour-intensive sectors, is vital for economic sustainability. There are combinations of factors that are leading to the slowdown in this sector, including lack of diversification, dynamism and low level of competiveness,” Singh said. The slow growth of the labour intensive sectors is also caused by domestic developments such as the ham-handed implementation of the GST.

“The implementation of GST and the associated glitches have hit the small and medium-scale enterprises the hardest, derailing growth in sectors such as textiles, gems and jewellery, and leather, where such enterprises dominate the supply chain,” Singh added.